Risky Business
This is the likelihood that an inappropriate audit opinion when the financial statements are actually materially misstated.
What is audit risk?
Detective controls are great, but these are even better.
What are preventive controls?
This duty initiates or approves a transaction.
What is authorization?
Misappropriation of assets is typically not in the routine transactions, but in these.
This type of bank statement is used to analyze transactions just after year end.
What is a cutoff bank statement?
The typical relevant assertion for revenue.
What is existence/occurrence?
This is the likelihood that material errors or frauds will be present in the accounting system and end up in the financial statements.
What is inherent risk?
a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following three categories:
What is COSO's definition of internal control?
This duty has access and/or control over assets.
What is custody?
These three elements create the perfect storm for employee fraud.
What is incentive, opportunity, and rationalization (the fraud triangle)?
Valuation is only a relevant assertion for cash when the company holds this.
What are foreign currencies?
Positive, negative, and blank are types of this.
This is the likelihood that the client’s internal controls will not prevent or identify material misstatements that might occur.
What is control risk?
This subset of the board of directors is in charge of arranging and overseeing the audit, overseeing internal controls, and monitoring the fraud hotline.
What is the audit committee?
This duty enters information into the accounting system.
What is recording?
A fraud scheme that involves misapplying customer payments to conceal theft of those payments.
What is lapping?
Using this circumvents employees and the risk of them stealing customer payments.
What is a payment lockbox?
Due to the allowance for doubtful accounts, this is relevant assertion applies to accounts receivable.
What is valuation?
This is the likelihood that the audit procedures will not identify material misstatements that might occur and slip through internal controls.
What is detection risk?
The use of this employee role not only ensures accuracy of transactions, but can also monitor controls in real-time.
What is an internal auditor?
This duty compares the results of the other 3 to identify discrepancies.
What is reconciliation?
This, above even separation of duties, is the greatest fraud preventer.
What is tone at the top, or control environment?
Using this helps to prevent payments from being made to payees that employees have made up for the purpose of stealing cash.
What is an approved vendor list?
According to the PCAOB, this must be reported with an allocation between multiple deliverables.
What is revenue (recognition)?
The risk category made up of inherent risk and control risk.
What is risk of material misstatement (RMM)?
NERDY QUESTION!
A process designed to identify risks, estimate their significance and likelihood, and consider how to manage those risks.
What is enterprise risk management (ERM)?
This scheme circumvents separation of duties.
What is collusion?
An important policy that sounds lovely, but is actually an internal control.
What is requiring taking vacation time?
When a company assigns two people to the same duty simultaneously, such as opening the mail, it is called this.
What is dual custody?
This can only be issued when a customer order has been shipped.
What is an invoice?
In the use of the audit risk model, you solve for this.
What is detection risk?
The questions we ask ourselves as auditors to identify risks.
What is "What could go wrong?"
Small companies or departments can use this when separation of duties is not possible.
What is management review?
What is a cover-up?
A management fraud that takes advantage of the lag time between deposits being made and being posted by the bank.
What is kiting?
A management fraud that involves invoicing a customer before shipping their order, usually done for the purpose of recognizing revenue earlier.
What is bill and hold?